Casino Enterprise Management

Money Lending and the Asian Customer

By Bill Zender

Author’s Note: The opinions rendered in this article represent an economic viewpoint of the subject and are not subject to opinions relevant to the moral issues of gambling and credit.

Several years ago, I had the opportunity to travel to the destination gambling-center of Macau. This pennisula, adjacent to the Chinese mainland, has provided gamblers with an opportunity to wager on games of chance for more than a hundred years. Most recently, Macau has reverted back to the Chinese government from which it originated, well before the Portuguese laid claim to their “sphere of influence” in the 1800s. This “Special Administration Region” has increased the desire for modern casino gambling and presently accommodates a number of local and foreign gaming companies. Then again, what better location would there be than casinos on the Chinese coast. Everyone in gaming knows that gaming is part of the Asian culture.

During my visit to Macau, I happened to walk into one of the local casinos known as the Casino Lisboa. The Lisboa has been in operation in Macau for quite some time and is frequented primarily by the Macanese locals and gamblers from the Chinese mainland. The casino offers gaming on virtually every floor, with a majority of the table games occupying the main floor. It’s in this area where I was attracted to the two active Pai Gow tile tables. It was immediately apparent that the games were not house banked but were dealt using a rotating player-banking system. This system allows the customers to bank and play against each other while the house’s sole purpose is to operate the game. Since they are not involved in the wins and losses of the game, the casino usually takes a fee from the players. This fee is structured in the form of a “collection” placed by all the players before the hand begins or a “commission” charged on each player’s net win at completion of the round.

While I stood there watching the play, I noticed that the house did not collect a fee prior to the hand, and with the completion of the hand I noticed they didn’t collect a commission on the net win. How did the Casino Lisboa make money on its Pai Gow games? After a period of inquiry, I discovered management leases the games to local “junketeers,” and collects a nice monthly fee for providing the floor space, tables, chips, tiles and dealers. But if that was the case, then how does the junketeer make money? I assumed that neither the junketeer nor the casino was in the gambling business just for fun.

I later discovered that the junketeer generates income solely by lending money to the losing players. His customers are allowed to wager against each other for free; however, at some point his players will come out losers and will be required to ask the junketeer for a temporary loan. How much does this “temporary” loan cost the player? The borrower is required to pay the junketeer a fee of 10 percent of the total he borrowed. I forgot to mention that the 10 percent fee is collected on a weekly basis. This “juice” money is paid by the customer borrowing the money just to maintain the loan and does not reduce the principle amount. For example, a player borrowing $10,000 has to pay the junketeer $1,000 a week to maintain his loan and will not get out from under this debt until the entire amount is paid back (plus any interest incurred the week it is paid back).

This method of borrowing money and the 10 percent weekly juice number is not uncommon in Asian communities and has been used by many past generations of gamblers. I once knew a Chinese gambler who needed an immediate loan to pay off his gambling debt at a California card room. The money lender reportedly charged him 20 percent on the borrowed money. Why? Because he needed the money immediately, and the urgency of the situation required a higher interest rate. It’s quite common to find these “juice people” in the general proximity of a gambling room where Asian-interest games abound.

Most countries have a “Usury Law” restricting companies or business from charging too much interest on loans or advancements. In the U.S., Usury Laws are state laws that specify the maximum legal interest rate at which loans can be made. Usually interest charged in excess of 30 percent annually is considered to be illegal. If you do the math on the interest rate on 10 percent weekly and multiple it to an annual figure, it calculates to be more than 500 percent.

Most destination resort casinos in North America will temporarily loan money to their better gamblers. This is done as a courtesy for their casino customers. It allows customers to travel to the casino without worrying about carrying large amounts of currency on their person. It also provides the customers with a money source just in case they spend the funds that they have brought with them. This marker system allows the casino gambler to play longer and wager larger amounts of money, which, over the long run, provides greater revenues for the casino. These loans are treated as temporary and are secured with a negotiable instrument upon departure and collected after the customer returns home and has time to gather the necessary funds. Since the marker system is a courtesy, the customer is not charged any fee or commission on the outstanding funds. Some casinos allow their better customers to negotiate longer terms for settlement, some as long as 90 days. Of course, this is also without the customer being charged an interest fee.

Many Asian customers that use the casino’s marker systems run into collection problems. In their culture, a loan is charged an interest fee. If the loan does not require a fee to be paid, like the marker systems the casinos use, it’s not considered a loan—it’s considered a favor. In the Asian culture, favors are only repaid when the player has a lucky day at gambling and wins a great deal of money. Obviously, lucky days do not come frequently enough for the casinos that issue markers, and the account quickly becomes delinquent. Many casino executives who are unfamiliar with this “custom” find themselves deep in uncollected markers from players who are “insulted” by the casino’s insistence that they pay their debt back in a fixed period of time.

In order to make credit collection more efficient, the casinos place the responsibility for collecting the outstanding account on the shoulders of the Asian host. This strategy is understandable. Since the Asian host is familiar with the cultural differences, he or she is in the best position to assist in collection of the debt. In many cases, the host is involved in the issuance of the marker money and understands the client’s financial background. This makes the Asian host the best intermediary in an attempt to negotiate the return of the outstanding account money. The Asian host understands that a favor granted allows for the grantor to request a favor in return. Basically, the Asian host informs the player that his boss (the casino) did the player a favor by issuing the marker, and now the player must return a favor to the casino and pay the debt.

The Asian culture’s reliance on “favor exchange” also places the host in a bad situation. If a host invites a player to the casino, the player views his decision to play at that casino as a favor to the host. He now expects a favor to be paid in return as well. This favor can be anything from a decision to upgrade the player’s accommodations to issuing credit for a higher amount than the customer can cover with his existing financial position. This entire “credit/favor” situation leads to a high percentage of debt write-offs, and a segment of good gamblers who no longer play in that casino.

In order to prevent this situation from happening, it’s extremely important that the casino executive take the final credit decision-making responsibility away from the Asian host, or at the very least, act as a buffer between the host and the customer. If an executive of the casino gets involved, the host does not have to say “no” and lose face to the player. The host can advise the player that he will do everything in his power to get his boss to approve the credit. If it’s not approved, the host can tell the player he tried, but his “stubborn” boss would not grant a credit line of the requested amount. The host is still in a position to continue to negotiate credit but at a more secure and reasonable credit amount level.

Money lending by a third party is not unusual and can be expected in casino regions outside North America. For instance, many of the casinos inside the Dominican Republic have opted to employ an outside source to provide customer credit. After experiencing an extremely high uncollectable percentage of markers issued (in excess of 20 percent), several casinos decided to use local money lenders known as “papitos” to provide funds. These money lenders will place several hundred thousand dollars or pesos into front money accounts in the casino cage. If a customer wishes to borrow money, he is sent to the money lender, who will issue the funds directly out of the front money accounts. The money lender is then responsible for establishing a collection system. To make this arrangement a little more appealing to the money lender, the casino will also pay him a small commission percentage for every “legitimate” dollar he loans to players. This informal structure of outsourcing allows the casino to provide a source of funds for players while keeping the casino’s debt cost to a minimum.

Fortunately, modern technology and flexible banking needs have provided casinos with alternative sources for supplying the gambler with additional gambling funds. ATMs and check cashing services have helped casinos lower the risk for providing temporary money. Still, some cultures are reluctant to use the financial institutions as a source of temporary gambling money and will always revert to the money lender and the astronomical interest rates.

How Modern Casinos Collect their Money
In the old movies, you see a knuckle-cracking mobster go to a gambler’s office to collect casino debt. This doesn’t happen in today’s modern gambling industry. The casinos still have muscle that collects the bad debt, but it comes in the form of an information system known as Central Credit, LLC. Central Credit is an independent company used by the casinos that monitors the credit activities of gamblers. It monitors the player’s past credit and gaming history, his present outstanding debt and any recent activities. Using this information, the casino credit department knows whether a customer is a credit risk, or is becoming a risk, by simply conducting an inquiry into the customer’s file. This file can be updated on a regular basis or immediately if need be. Keeping track of each gambler’s credit history is important. A gambler who reneges on his debt at one casino will have a difficult time securing a credit limit with other casinos. This method of communication motivates the gambler to honor his debt obligations and keep his casino credit account current.

The system also prevents customers from scamming the casino through a technique called “rounding.” The scam is set up by a gambler, or “rounder,” who establishes credit in a number of different casinos over a recent period of time. Once the credit lines are established, the scammer will pick a weekend and deplete each of the credit accounts without any intention of paying back the money. In the past, this was an extremely dangerous fraud technique due to the fact that most states didn’t observe gambling debts as legally collectable. Today, as they did back then, Central Credit plays an important part in safeguarding the casino’s interests. Central Credit still alerts the different casinos when they have a player in their system that fits the criteria of a rounder by opening a number of accounts at different casinos during a short period of time. [Note: Central Credit was founded in 1956 and is based in Las Vegas. As of 09/10/1999, Central Credit LLC is a subsidiary of First Data Corp.]

Bill Zender is a former Nevada Gaming Control agent, casino operator, professional card counter
and present gaming consultant. He has been involved in various areas of gaming and hospitality since 1976.  He can be reached at wzender[at]lastresortconsulting.com.